CONSTRUCTION RISK MANAGEMENT
Customized Construction Risk Management
AEI’s team of engineers, architects and construction professionals understand the complexities, difficulties, and risks associated with the construction phases of real estate development and renovation. Our national reach and regional focus allow us to provide our clients with insights on construction trends across the US, as well as on a regional and local basis.
Our construction risk management services can be engaged at any point in the construction process and are customized for each project and client role. AEI’s team of seasoned professionals will advise to help manage risk on each project.
Construction Risk Assessment (CRA)
A Construction Risk Assessment (CRA) is performed during the Pre-Construction phase of development to assess the level of document preparation and due diligence of a proposed construction or renovation project.
These identify areas of risk regarding project timeline and budget (hard and soft costs), offering recommendations for managing those risks.
The scope of our CRA generally includes the following:
REVIEW OF CONSTRUCTION DOCUMENTS
AEI reviews and assesses the general completeness of construction drawings, permits, due-diligence reports and studies, regulatory board approvals, specifications, schedules, and budgets that have been prepared for the project. Our services can be provided on projects where due diligence and documentation may still be in progress.
To deliver the most value, we recommend this review involves a “build-set” of documents that have completed permit review, value engineering, and bidding. Our team will review and provide an opinion concerning the construction documents for overall comprehensiveness, coordination, and completion.
REVIEW OF AGREEMENTS & CONTRACTS
AEI will review and evaluate the contract between the owner and contractor to identify risks associated with scope, payment requirements, dispute resolution, schedule, and warranty. We will also provide a review of the contractor’s and architect’s qualifications based on readily available public information about the companies from state licensing boards and the Better Business Bureau.
REVIEW OF CONSTRUCTION BUDGET
AEI will use construction cost analysis tools, such as R.S. Means Building Construction Cost Data and R.S. Means Square Foot Cost Reports, along with internal databases to provide a cost comparison of the proposed budget structure identification, such as Guaranteed Maximum Price, Stipulated Sum, Cost Plus Fixed Fee, or Time and Materials.
During this review, AEI will:
- Identify risks associated with budget structure to support the client’s risk management review and evaluation.
- Compare project construction costs to current industry costs for projects of similar size, construction type, building use, and region.
- Recommend, if appropriate, adjustments to specific line-item costs, overhead and profit, hazardous material management, and contingencies, if such costs appear contrary to industry standards.
- Confirm that the cost breakdown submitted by the borrower (developer/contractor) is generally acceptable as the standard for future pay application submissions and loan disbursements.
Project Status Report
During the Construction Phase, a Project Status Report (PSR) is prepared in conjunction with a pay application.
A physical site visit is performed to independently verify the completion percentage of the reported construction contained within the pay application during the draw request period.
AEI’s PSR includes the following:
REVIEW OF PAY APPLICATION
As part of the PSR process, AEI will review the progress of construction and the contractor/developer’s payment application to the lender for uniformity and overall appropriateness. We will review the construction draw requests from the contractor and developer and ascertain if the work for which funds are requested have been completed. When change orders arise, we will disclose all pending and executed change orders and verifiable budget overruns. If necessary, AEI can review and comment on any shared information from municipality or other inspections, such as plans, permits, and final inspection. We will report any potential changes to the expected completion and determine if the contractor is in conformance with the construction schedule. Finally, AEI will comment on whether pay application invoices are accompanied by necessary conditional and unconditional lien releases.
PHYSICAL SITE VISIT
AEI’s PSR includes a physical site visit to observe the construction work in progress, the overall visual quality of the work performed, and a review of the current pay application. Site visits are typically performed on a monthly basis but can change depending on the complexity of the project. The PSR is generally prepared within 5 business days after completion of the physical site visit, and consists of a report summarizing site observations, interviews, review of payment-related documents, and photos of the site work progress. AEI will present a list of items missing from the pay application and will identify issues that may impact the successful on-time completion of the project, along with recommendations. AEI will offer an opinion as to the appropriateness of the draw request or payment application.
Repair Confirmation Report (RCR)
PHYSICAL SITE VISIT
AEI’s RCR includes a physical site visit to observe the completed repairs and/or replacements regarding overall general quality of the work performed and a review of the request for escrow disbursement. The site visit(s) will be performed at a frequency requested by the Client. The site visit will include an interview with a representative of the borrower/owner to discuss completed repairs and/or replacements, and future schedules for completion.
Our services are not intended to replace or perform the work of local building code compliance officials, quality assurance consultants, LEED consultants, or owner’s representative services on your behalf.
REQUEST FOR ESCROW DISBURSEMENT REVIEW
AEI will review the request for escrow disbursement from the borrower/owner and ascertain if the work for which funds are requested has been completed. We will review conformance and evaluate consistency of the request for escrow disbursement with the previous recommendations. We will also visually review the completed repairs and/or replacements.
The RCR is generally prepared within 5 business days of the completion of the physical site visit. This will consist of a report summarizing site observations, interviews, a review of submitted documentation, and photos. We will provide recommendation on whether to release escrows. If necessary, recommendations for requested fund reduction will be made.
CONCEPTUAL BUDGET REVIEW
AEI will use construction costs analysis tools such as R.S. Means Building Construction Cost Data and R.S. Means Square Foot Cost Reports, along with internal data, to provide a cost comparison of the proposed budget with typical industry costs.
The cost review will include the following:
- Identification of the budget structure, such as Guaranteed Maximum Price, Stipulated Sum, Cost Plus Fixed Fee, or Time and Materials.
- Identification of risks associated with budget structure to support Lender’s risk management review and evaluation.
- Comparison of the project construction costs to current industry construction costs for projects of similar size, construction type, building use, and region.
- Recommendation of a review, and if appropriate, an adjustment to specific line-item costs, overhead and profit, hazardous material management, and contingencies to industry standards.